Russia proposes “electricity pipeline” to Germany

Wednesday, December 8, 2010

Russia is proposing to build a high-voltage electricity cable from Kaliningrad to Germany across the Baltic Sea to export power produced from a newly to be built nuclear power plant. The cable would be laid alongside the last part of the gas pipeline Nordstream that Gazprom is building together with western partners and that will be used to transport gas direct from Russia to Germany across the Baltic Sea. The electricity cable would similarly bypass third countries, in this case Poland. A representative from the German Ministry of Economic Affairs says he does not expect Germany to be willing to acquiesce to the plan. ‘I cannot imagine that the German public will want to import nuclear power (“Atomstrom”) from Russia’, he says.

The government of Kaliningrad, a small Russian enclave squeezed between Poland and Lithuania, has a problem. It has given permission to the Russian state-owned nuclear electricity producer Rosenergoatom to build a large 2,300 MW nuclear power plant at a site 120 kilometres east of the city of Kaliningrad. Preparation work on the site of this controversial project, called the Baltic Nuclear Power Plant (NPP), started in February of this year. The first of the two 1,150 MW reactors is expected to be ready in 2017, the second one in 2019. (See box below.) Kaliningrad is the former East Prussian region of Königsberg, which was taken by Russia from Germany at the end of the Second World War.

However, according to data from the Russian electricity supplier Inter RAO, which is responsible for the commercial development of the project, Kaliningrad itself, which has a population of less than 500,000, will be able to absorb only a small part of the power that the Baltic NPP will produce. This means most of the new production will have to be exported to maintain the balance in the Kaliningrad power system and to make the project feasible.

The question is, where can electricity exports from Kaliningrad go? According to Maxim Kozlov, Project Manager of the Baltic NPP for Inter RAO, there are various options: the power could be sold to Russia, the Baltic countries, Poland, Finland, Sweden or Germany. He said this at a conference in Kaliningrad held by the Nordic Council of Ministers – a high-level forum for Nordic cooperation – on 24 and 25 November.

Excess capacity

But to realize any of these options entails considerable challenges. For Kaliningrad to export to Russia, Finland, Sweden, or the Baltic Countries would require significant investment in expansion of cross-border connections, in particular between Kaliningrad and Lithuania. The problem is that Lithuania has plans to build a new 3,400 MW nuclear power plant of its own, which, if it gets off the ground, will also lead to excess production capacity in that country. Vilijus Samuila, energy security expert at the Ministry of Foreign Affairs of Lithuania, said at the conference that he ‘doubted’ there would be room for two new NPP’s in the region. At the same time, he expressed confidence that the Lithuanian project would go through. ‘A strategic investor will be announced soon’, he said. ‘Next year we will sign the contract.’

Finland, which is already building a new NPP, and has made a decision in principle to build two more in the coming years, likewise does not need to import electricity until at least the 2020’s, said Hannu Lipponen, senior advisor of the Finnish Energy Department. Lipponen said the Finns are also aiming to export power in the future. Export of electricity from Kaliningrad to Poland similarly requires heavy investments in cross-border connections as well as in the domestic Polish electricity infrastructure.

Artur Gluszek, head of “Inter-TSO Cooperation” at the Polish transmission system operator, said that it will be no easy matter to integrate the Baltic NPP with the Polish network. In addition, he pointed out that Poland, too, has plans to build its own NPP, and to build 6,000 MW of wind power in the north of the country in the coming decade. He also noted that plans for the expansion of interconnection between Poland and Lithuania are much further developed than plans for new cross-border power lines from Kaliningrad to Poland.

If Poland and Lithuania do not cooperate, the only option left for Kaliningrad is to try to sell its excess power to Germany. A similar situation would then arise as with the Nordstream pipeline, through which Russia will deliver gas direct to Germany, bypassing countries in Eastern Europe. The difference is that this time the Russians seem to be more dependent on the Germans than vice versa.

‘Our proposal to Germany is to build an HVDC (high-voltage direct current) cable along part of the Nordstream gas pipeline, through the Baltic Sea, to Lubmin’, says Kozlov. ‘We think this is feasible. It is now being investigated.’ Lubmin is a north German port town which is also the landing point for Nordstream. Kozlov says that studies show Germany will have a power deficit in the future, which Kaliningrad could partly make up for.

But the German government does not seem to be too enthusiastic about the Russian project. According to a high-level representative from the German ministry of Economic Affairs and Technology, Germany is primarily concerned with the safety of the plant. A German delegation has already inspected the site. ‘We cannot stop it’, says the German government representative. ‘But we try to make sure it is safe.’ As to the idea of a direct cable from Kaliningrad to Lubmin, he is sceptical. ‘Kann ich mich nicht vorstellen.'
The German public will view it as import of “Atomstrom” and they will not want that.’ The German government’s recent decision to extend the lifetime of its domestic nuclear power plants has generated a lot of protest in that country.

Despite these obstacles, Kozlov says he is absolutely certain that the Baltic NPP will be built Uniquely for a Russian nuclear power station, Inter RAO is looking for foreign investors to participate in the project, in order to improve its commercial chances. One company that has shown interest in participating is the diversified Italian energy giant Enel. But even without foreign investors, the Baltic NPP will be built, says Kozlov. EER spoke to him on the sidelines of the conference.

Where does the project stand at the moment?
On site most of the preparations are ready. Roads, temporary offices, the pit for the first generation unit. In April next year the first concrete is expected to be poured.

What about the financial side of the project? When do you expect a final investment decision to be taken?
The budget for the project is included in the budget of Rosenergoatom. All the expenses that have been incurred so far fall within this budget. The reason why we are trying to attract foreign investors is not because Rosenergoatom lacks money. The reason is quite different. We understand that this power plant is part of the wider power market. We know very well where it will be located. Kaliningrad is surrounded by EU member states. For us it is important therefore to make this an international project, to create win-win circumstances.

What if you don’t find foreign investors, will it still be built? For sure, yes, for sure. It will be built. But we will definitely find foreign investors.

Who will you sell the power to if Lithuania and Poland do not want to invest in expanding interconnections? First of all, the Baltic NPP will supply customers inside the Kaliningrad region. That is why it was decided to build the plant in the first place. But it is true that there will be an excess of capacity in Kaliningrad. That is no secret. We count on cooperation with the Baltic States, with Poland, and with Germany. We have looked at different studies that make long-term energy forecasts, and they all show that there will be a power deficit in the region in the long term, as a result of environmental considerations and in particular the decommissioning of coal-fired power plants. That’s why we believe that building new nuclear capacity is feasible in the Baltic region.

But Lithuania wants to build its own 3.400 MW nuclear power plant at Visaginas. Can both these plants be built?
Sure, we think it is possible for both of them to be built.

The Lithuanian government has criticized your approach. It has said that whereas Lithuania is preparing its project carefully and will then make a decision, you have made a decision first and are only now making the necessary preparations. That is not correct. We have also been preparing this project very carefully. The idea of building a NPP in Kaliningrad was conceived more than 4 years ago. At the time, a decision had already been made to decommission the nuclear power plant in Lithuania at Ignalina , and no decision had been made about building a new one. So the situation looked tough, especially for Kaliningrad. Kalingingrad has been dependent on external energy supplies. So it was necessary first of all to make a decision to do this for Kaliningrad. Then we took al the necessary legal, environmental and financial steps. For instance, we prepared an Environmental Impact Assessment which we officially presented to ten neighbouring nations (including Lithuania) almost a year ago.

Poland and Belarus are also talking about building new nuclear power plants. Well, these plans have not really materialised yet, so it is difficult to take them into consideration.

But you will need the cooperation of Poland and Lithuania to secure more physical interconnections. We have made a proposal to our Polish and German colleagues, to build new cross-border interconnections. Our proposal to Germany is to build an HVDC cable along part of the Nordstream gas pipeline, along the Baltic Sea. This is already being investigated.

The German public may not accept the import of nuclear power. But it would not be nuclear power. It would be power from the power system. As you know, electrons are not marked in any way. We propose to build this cable in cooperation with Germany and the Baltic States. In the most recent German government’s energy strategy paper it is noted that Germany will have a deficit in the long term which should be covered somehow. We are ready to cover some small part of this deficit with our power supplies, which can be a good back-up for renewable energy.

Some people regard the Baltic NPP more as a political than an economic project. In my view it is a simple business venture. We will produce electricity to be sold on the market, to earn money. Now we are engaged in attracting investors. There will be no investors if they can’t see the feasibility of this project.

But why Kaliningrad? Is this a logical location for a power plant that is to have a regional function?
Why not? Don’t forget, our first aim is to ensure power supply for the people of Kaliningrad. That is why we are building it here.

Why did you decide to involve foreign partners? It was not my company’s decision, it was the Russian government that decided this. My company is just responsible for organizing the process to attract investors. Inter RAO has traditionally been an expert in cross-border trade of electricity.

Why did the Russian government decide this?
The major reason is to show our openness and transparency and our readiness to work in a competitive environmental market.

How far are you with the negotiations with investors?
Enel has been mentioned as a possible partner. We have signed a memorandum of understanding with Enel in April. We have very good relations with our Italian colleagues. And a few months ago we asked WorleyParsons, the number one engineering company in the power sector, to take part in developing a bankable feasibility study of the project. This study will lay the groundwork for investors to participate. It should be ready late Spring next year. A definite decision from private investors is not expected before the middle of the year. But we don’t need it before then.

Who is Maxim Kozlov?
Maxim Kozlov (1964) graduated from Moscow Power Engineering Institute (Technical University) in 1987. He received his PhD in electrophysics and took an MBA course at Bocconi University in Italy in 1992 and followed a Project Management course at George Washington University in 1995. From 1993 to 1999 he worked for Swedish engineering company ABB in business development and marketing. From 1999 he worked first for RAO UES then for Inter RAO UES. He is Project Manager for the greenfield Baltic nuclear power plant construction in Kaliningrad. Inter RAO is responsible for attracting external investors and for arranging energy exports from the region.

BOX: The Baltic NPP – facts and figures
The Baltic nuclear power plant (NPP) is a project for building two 1150 MW VVER-1200 nuclear reactors (the latest Russian design) in the Kaliningrad region 120 kilometres east of the city of Kaliningrad. Construction cost is estimated at €5 bn. It is proposed that the project will be 51% owned by Rosenergoatom and 49% by one or more private investors. The first unit should be operational by 2017, the second by 2019.
A 330 kV overhead line (OHL) will need to be built in the Kaliningrad region as well as cross-border power grid facilities including High Voltage DC cables. Construction costs of these transmission assets is estimated by Inter RAO at between €0.5 bn and €1.6 bn depending on the choice of variants. Possibly a separate company might be set up to carry out the transmission activities. Foreign investors might be involved in this company as well.
Inter RAO is candid about the surplus of power that will be available in Kaliningrad once both reactors are put into operation in 2019. The total supply of power in Kaliningrad will then be 3270 MW (including the 2300 MW of the Baltic NPP), whereas the required load will probably vary from 610 to 1210 MW. This means excess capacity will be between 2060 and 2660 MW. Even if only one 1150 MW reactor is built, the surplus will be between 1120 and 1650 MW. This implies that the nuclear power plant is hardly necessary to supply domestic needs.

Energy Perspectives for the Kaliningrad Region

According to a recent scenario study from the Danish consultancy Ea Energy Analyses. “Energy Perspectives for the Kaliningrad Region”, it is theoretically feasible to build both a 2,300 MW new nuclear power plant (NPP) in Kaliningrad and a 2,300 MW new NPP in Lithuania. However, in this scenario a new 1,000 MW interconnector between Kaliningrad and Poland is assumed as well as a reinforcement (+900 MW) of the interconnectors to Lithuania. Moreover, no new NPP in Poland is taken into consideration. If the two new NPP’s are built as well as the required interconnections, this would lead to a large net export of power from Kaliningrad to Poland and from Lithuania to Sweden. It would also significantly reduce the use of biomass in the electricity sector. The Ea study was initiated by the Baltic Development Forum and sponsored by the Danish Ministry of Foreign Affairs and the Nordic Council of Ministers’ Information Office in Kaliningrad.